South Africa's rand, bonds knocked to over two month lows

JOHANNESBURG (Reuters) - South Africa's rand and government bonds weakened to their lowest in over two months on Tuesday on expectations that the United States would reduce monetary stimulus sooner than expected. The rand, in a three-week losing streak, fell to 10.4585/dollar in the session, a level not seen since August 28. At 1420 GMT, the local unit was down 0.2 percent at 10.4080, trading around the 10.40 level importers found attractive on the day, dealers said. Since Friday's better-than-expected U.S. jobs data, speculation that the Fed might reduce its monthly bond-buying programme sooner than previously thought has weighed on emerging market assets. Investors are selling South Africa more aggressively than its emerging market peers because of domestic risks such as mining labour unrest and gaping holes in the current account and budget deficits of Africa's largest economy. Yields on government debt rose to early September levels, hitting 8.415 percent on the benchmark 2026 bond and 6.30 on the 2015 note. "The very strong payrolls number that came out on Friday brought back the tapering story. Some people now think it will be brought forward to December after being expected in March," said Jonathan Myerson, head of fixed income at Cadiz Asset Management. "Tapering makes countries with the type of deficit that we have particularly vulnerable." South Africa is running a current account deficit equal to 6.5 percent of its gross domestic product, mainly because of a weak trade position. The Treasury received higher demand for 2.35 billion rand worth of 2023, 2030 and 2041 debt earlier in the session, with portfolio managers seeing value in the higher yields.